Vail Resorts (NYSE: MTN) - Q4 2024 Earnings Call

Welcome to the Vail Resorts fiscal 2024 year-end earnings conference call. Today's conference is being recorded. Currently, all callers have been placed in a listen-only mode, and following management's prepared remarks, the call will be opened up for your questions. If you would like to ask a question at that time, please press star one on your telephone keypad. If you need to remove yourself from the queue, you can press star two. To get to as many questions as time permits, we ask that you please limit yourself to one question and one follow-up. If you should need operator assistance, please press star zero. I will now turn the call over to Kirsten Lynch, Chief Executive Officer of Vail Resorts. Please go ahead, ma'am.

Thank you, Kirsten. As Kirsten mentioned, our overall results for the year highlight the stability and resilience of our advanced commitment strategy. Net income attributable to Vail Resorts for fiscal 2024 was $23.4 million, or $0.67 per diluted share, compared to net income attributable to Vail Resorts of $268.5 million, or $6.74 per diluted share, in fiscal 2023. The decrease in net income attributable to Vail Resorts was primarily due to an increase in our provision for income taxes, decreased Resort reported EBITDA, an increase in interest expense, and an increase in depreciation and amortization expense primarily due to capital projects recently completed at our resorts and assets acquired at Crown Montana. Turning to our resource efficiency transformation plan: over the past decade, Vail Resorts has expanded significantly, growing from 10 to 42 owned and operated mountain resorts in four countries, more than doubling our workforce during that expansion. The company captured initial acquisition synergies in corporate support functions and through technology integration. However, as we've shared publicly over the past two years, the company has a unique opportunity to further transform resource efficiency given the scale of our 42 owned and operated mountain resorts, a common enterprise-wide technology ecosystem, and robust data and analytics capabilities. The company is implementing a two-year resource efficiency transformation plan to create organizational effectiveness and scale for operating leverage as the company expands and grows globally. The transformation plan is focused on three pillars: scaled operations, a best-in-class global shared services model, and an expansion of workforce management. We expect that the transformation plan will achieve $100 million in annualized cost efficiencies by the end of fiscal 2026, with approximately $27 million to be realized in fiscal 2025 and approximately $67 million realized in fiscal 2026, all before one-time costs. We expect the efficiencies to be partially offset by one-time operating expenses of approximately $15 million in fiscal 2025 and approximately $14 million in fiscal 2026. In addition, we expect capital investments of approximately $6 million in calendar year 2025 and approximately $12 million in calendar year 2026. The company's mission is to create an experience of a lifetime for our guests. The transformation plan is designed to prioritize delivering the company's mission while also providing scale and operating leverage for future growth. Now turning to our outlook for fiscal 2025: the company is providing its initial guidance for the year ending July 31, 2025, and expects net income attributable to Vail Resorts to be between $224 million and $300 million. For fiscal 2025, the company expects Resort reported EBITDA for fiscal 2025 to be between $838 million and $894 million, including an estimated $15 million in one-time costs related to the multi-year resource efficiency transformation plan and an estimated $1 million of integration-related expenses specific to Crown Montana. As compared to fiscal 2024, fiscal 2025 guidance includes the assumed benefit of a return to normal weather conditions after the challenging conditions in fiscal 2024, more than offset by a return to normal operating costs and the impact of the continued industry normalization impacting demand. Additionally, the guidance reflects the negative impact from the record low snowfall and related shortened season in Australia in the first quarter of fiscal 2025, which is expected to result in a $10 million decline in Resort reported EBITDA compared to the prior year period. After considering those items, we expect Resort reported EBITDA to grow from price increases, ancillary spending, the resource efficiency transformation plan, and the addition of Crown Montana for the full year. At the midpoint, the guidance implies an estimated Resort EBITDA margin for fiscal 2025 to be approximately 28.6%, or 29.1% before one-time costs from the resource efficiency transformation plan and integration expenses. The guidance is based on certain assumptions, including a continuation of the current economic environment, normal weather conditions for the 2024-2025 North American and European ski season and the 2025 Australian ski season, and reflects the challenging conditions in Australia for the end of the 2024 winter ski season. Guidance assumes an exchange rate of 74 cents between the Canadian dollar and US dollar related to the operations of Whistler Blackcomb in Canada, an exchange rate of 67 cents between the Australian dollar and the US dollar related to the operations of Perisher, Falls Creek, and Hotham in Australia, and an exchange rate of $1.18 between the Swiss Franc and the US dollar related to the operations of Andermatt Sedun and Crans-Montana in Switzerland. Our balance sheet remains strong, and the business continues to generate robust cash flow. As of July 31, 2024, the company's total liquidity, as measured by total cash plus revolver availability, was approximately $946 million. Total liquidity is comprised of $323 million of cash on hand and $623 million of combined revolver availability across our credit agreements. As of July 31, 2024, the company's net debt was 3.0 times its trailing 12 months total reported EBITDA. Regarding the return of capital to shareholders, the company declared a quarterly cash dividend of $2.22 per share of Vail Resorts common stock that will be paid on October 24, 2024, to shareholders of record as of October 8, 2024. In addition, during the quarter, the company repurchased approximately 0.1 million shares of common stock at an average price of approximately $180 for a total of $25 million. For the full fiscal year, the company repurchased a total of approximately 0.7 million shares of common stock during fiscal 2024 at an average price of approximately $228 for a total of $150 million. Additionally, the board of directors increased the company's authorization for share repurchases by 1.1 million shares to approximately 1.7 million shares. We will continue to be disciplined stewards of our shareholders' capital, prioritizing investments in our guest and employee experience, high-return capital projects, strategic acquisition opportunities, and returning capital to our shareholders, while always prioritizing the long-term value of our shares. Now I'll turn the call back to Kirsten.

Certainly, Miss Lynch. Thank you. Ladies and gentlemen, at this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Again, please limit yourself to one question and one follow-up. We'll go first this afternoon to Shaun Kelley of Bank of America.

Hi, good afternoon. Hi, Kirsten. Hi, Angela. Maybe we could just start with, you know, we're getting a few questions obviously there's a lot going on in the guidance and wanted to make sure I think we were all level set. So, Angela, this may be appropriate for you, but I think the punchline we're trying to get to is, and I think some investors are trying to get to, is if we start at last year's guidance and outlook which at the midpoint was around $940 million, could you help us think about that versus the starting point as we look at this fiscal year before we kind of get into the transformation program? Because to us it does imply a pretty big difference, and with weather normalizing, I think what we're trying to understand is how much of that difference is from consumer normalization, how much is just from maybe run-rate cost inflation in the business, and how much is from Australia or any other one-timers we need to think about. Thanks.

Yeah, thanks, Shaun, for the question. I'm going to start you back from this year's results. If you remember, we had two big things that we called out in terms of where we missed the original guidance, really being conditions and the normalization that we saw of demand. So as you think from actual results from this year, there are a few things to think about. For the guidance for next year, we are taking into account the return to normal weather conditions, assuming of course that comes back from what we saw as very abnormal conditions last year, but that's being more than offset by the return to kind of the normal operating cost and the impact of continued industry normalization that we are expecting to impact demand for this year. And then for Australia, the Q1 piece that we're calling out there is, as you recall, last year we had called out how much impact we had from weather, but in this current year we're continuing to see very severe conditions impacting the results in Australia. So our guidance assumes that that impact which we're seeing, which is a $10 million decline in EBITDA versus the prior year period, is factored into the guidance for fiscal 2025. So after you adjust for those kinds of puts and takes, what you're seeing is that the growth is coming from price and ancillary spending, and then the resource efficiency transformation plan, the $27 million that we announced that will impact this year's results, and then of course the addition of Crown Montana.

And Kirsten, that was sort of my follow-up if we could just build off that. You did have a little bit of a comment around summer, so what's giving you that outlook or that pause as it relates to any continuation there? Is it what you saw in summer? Is it any behaviorally on the pass? It looks like things got a little bit better, but maybe you could also sprinkle in your thoughts on just pass sales for the remainder of the open sales period.

Thank you very much.

Thank you. We'll go next now to Jeff Stantial at Stifel.

Hey, great. Good afternoon, Kirsten, Angela. Thanks for taking our questions. Maybe starting off here on the announced resource efficiency transformation plan. Kirsten, can you just maybe add a bit of color to which of the functions you're planning to switch from a resort or a regional level to more of the global shared services model? And as you do think about those three different pillars that you outlined in the prepared remarks, or however you want to categorize the plan changes, just how do you think about maybe the relative weighting of each in terms of contribution to that $100 million all-in cost savings? Thanks.

Great, no, that answered that question amazingly. Thank you for all that detail. And then maybe for my follow-up, I'd love to ask Shaun's question but maybe a slightly different way. A lot of puts and takes going into the guidance, everyone's trying to parse out some of these one-time headwinds. I think maybe there's just one variable that everyone has that might help solve the equation here, and that's really on the weather piece of the impact last season. So is there any way you could help quantify for us how much the year-on-year benefit from normalized weather conditions is embedded in the guidance? And maybe if not a firm number, maybe I'll phrase it as: was weather more meaningful last season relative to the demand normalization that you saw, or was it the other way around? Just however you could kind of frame that, I think would help a lot. Thanks.

Yeah, thanks, Jeff. As we talked about last year, we had, if you take Crown Montana out of the performance in Q4 and just look at the change we had, it was just over $100 million in terms of the decline from the original guidance. We really called out that both those two factors on the demand side were both material, both the normalization and the weather, so you can think about them in relatively the same size and offsetting, right? Some of that, of course, we had some cost actions that were taken in the year that were favorable, things like our management incentive program because obviously we were below our guidance for the year. So those are the three things you can think about from the prior year variances. And the part that we're saying is returning this year is that we are assuming that we would get back that weather piece, and then of course we're thinking about what does it mean that Kirsten just outlined on the continued demand normalization from what we're seeing on that delayed impact from pass sales that's impacting our guidance for next year.

Perfect, that's extremely helpful. Thank you, Angela. I'll pass it on. Thanks for all the color.

Thank you. We'll go next now to Megan Alexander with Morgan Stanley.

Hey, good afternoon. Thanks so much for taking our questions. I maybe wanted to just start by trying to see if we could tie some of your comments earlier together. I guess it's really just: can you share how you're thinking about visitation? You talked about two of the three factors being normalization and pass units being down, which maybe those are one factor in total, but both of those seem to be a headwind to visitation, again offset by the fact that you get some recovery on weather. So perhaps it could suggest that visitation is down again. Is that how you're thinking about it, or am I missing something? Is the impact from weather more meaningful than the prior impacts?

Hi, Megan, it's Angela. So, yeah, as you're thinking about it, I think most of the pieces correctly here is that weather had an impact last year both from people who didn't come, and we talked about lift ticket guests and we were down 17% on visitation from that. So that was a factor of both the weather impacts and what we saw on pass was on weather impacting the frequency of visitation. So as we talked about weather going forward to next year, we're expecting the kind of frequency, if you will, coming back to us from some of those impacts, and also return to some of that missed visitation that we had from people who did not visit on a lift ticket coming back. And then the demand normalization that we're talking about is just on what we are expecting for overall continued impact next year as we come off of some of this peak demand that we saw that we didn't see captured in the pass results going into last season.

Okay, that makes sense. And then maybe shifting gear just a little bit more to the transformational resource efficiency efforts that you announced today. I acknowledge that you did spend a considerable amount of time kind of prepping us for this at the investor day earlier this year, but just thinking about this, in many cases when we as analysts and investors sometimes hear about resource efficiency cost savings efforts, it can perhaps be because growth is slowing and the company may be entering a more mature state. But in reading and listening to your prepared remarks and the commentary on it, it seems like you're saying that it's intended to set you up for the next phase of growth. So is the read there as simple as you're trying to improve operating leverage, improve free cash flow conversion to be able to continue to execute on the strategic acquisition plan, or is it not as simple as that? Just trying to understand a little bit more about the decision-making that went into this announcement.

Got it. That's helpful. Thank you so much.

Thank you. We go next down to Laurent Vasilescu at BNP Paribas.

Hi, this is Zonu on for Laurent. On the cost savings, how much would be reinvested? And for the $100 million, are you thinking about that as a gross savings or net savings?

The $100 million is a net savings run rate that we would expect to have at the end of FY 2026 going into FY 2027. There's obviously in FY 2025 and FY 2026, as we publicly disclose, one-time costs in operating expense and CapEx, but the run rate savings we would expect to be $100 million by the end of FY 2026 after you get through those one-time costs.

Okay, got it. And then on the buyback, you increased the buyback. Can you talk a little bit more about your priorities in terms of capital allocation? Buybacks, continued M&A, dividend, etc.

Yeah, I'd be happy to. I mean, I think overall I'll just say that we've been very disciplined in our approach to capital allocation, and we are continuing to do that. Our priority has been to have high-return capital projects to reinvest in and invest in our people. We maintain a balance sheet with flexibility to pursue M&A opportunities. And then for return of excess capital to shareholders, we've prioritized the dividend, which we'll continue to do, and we've been opportunistic on the share repurchases. So specifically to what you're asking, in the quarter we did repurchase $25 million, or $150 million for the year, and we'll continue to evaluate that based on what we see for the best return of capital opportunities that we see out there.

Okay, great. Thanks, guys.

We go next now to Brandt Montour of Barclays.

Good evening, everybody. Thanks for taking my questions. So I wanted to start off on demand and just sort of drill in a little bit to some of your comments, Kirsten. Industry-level ski visits, you kind of make it sound like we're in this normalization period off the peak post-COVID or the peak COVID years. When I look at the ski visits on the average over the last couple years, those North American ski visits had run 10 to 15% above the average of the last cycle, right, and that was on poor weather. I just want to get a sense of where you think we're going. Are we going all the way back to the average levels of the last cycle? And really kind of why? Do you see things in your bookings or your surveys or your general conversations with folks, and just the nuts and bolts of what gives you the sense we're going backwards, I guess, and where we could bottom out? I guess that's probably the best way to ask it. Thanks.

Okay, thanks for that. And then a second question is on M&A. At the investor day, the conversation was around the Alps and achieving some sort of network effect over there, which would be an attractive opportunity. I think you were quoted in an article recently on Bloomberg about achieving diversification with M&A, and obviously we know Australia just had a really tough season, it was really about weather. So I guess the question has your M&A strategy altered at all? Has it shifted more defensive, i.e., diversification, from offensive? And does that change your return targets or underwriting hurdles when you think about what you'd really be willing to pay for Premier assets in Europe? Thanks.

Thank you. We'll go next now to Patrick Scholes at Truist.

Hi, good evening. Hi, Patrick. First question is: have you been contacted directly by either the FTC or the DOJ in relation to the Arapahoe Basin matter? I ask this because the Epic Pass and the Ikon Pass resorts in Colorado account for about 80% of visitation in the state, yet Alta only owns two resorts in the state, yet it looks like their acquisition of Arapahoe Basin is being held up now for going on about eight months. Thank you.

I'm afraid I know the answer to this follow-up question, but do you think there's any reasonable chance of some sort of action involving Vail Resorts or what might limit your ability to purchase more resorts or maintain your existing resorts in the US?

Do you think if there was some sort of contact from the FTC or Department of Justice that could cause a chance of limiting your ability to continue to own your existing resorts or continue to purchase resorts in the US?

Thanks. Okay, thank you. Can I get one more question?

Okay. There's out there the updated Forest Service master plan. I think it has the Vail Mountain 2024 master plan lift network upgrade proposal. It looks pretty all-encompassing. Can you give us your thoughts about potential timing or something we might see down the road? Thank you.

Okay, thanks, Patrick. Take care.

Thank you. We go next now to David Katz at Jefferies.

Evening, everyone. Thanks for taking my questions. Covered a lot of territory and appreciate all the detail. Just to follow up with respect to the corporate reductions, if you could give us just a little more color on what kinds of functions you are reducing. Is it elements that sort of reach out to the parks level from corporate? Is it corporate development in some way that may be executing acquisitions? What kinds of things are you shrinking? And then I have one quick follow-up in another direction. Thanks.

Perfect. And this may sound like a snarky question, but I really intended to have zero snark in it whatsoever. But can we just talk for a moment about sort of normal weather? Does normal weather mean there's a certain number of days that are impacted because weather just happens at ski resorts, or like what is normal weather? And is there a new normal that we should be thinking about?

It does help. Thank you very much. Good luck.

Thanks, David. We'll go next now to Ben Shen at Mizuho.

Hey, just one question. Thanks for squeezing me in. Understanding that last year had difficult weather, as you think about and reflect on the importance of the single-day customer as it pertains to your season pass sales funnel for future periods, does that make you think about the single-day pricing or promotion mechanism any differently? And then, related, are you doing anything this year to support this channel in order to drive pass sales in the future? Thanks.

Yeah, very helpful. And then, related, if I caught it correctly, I think you mentioned that in addition to the single-day conversions, there's a decline in the totally new to Vail customers. Maybe if that's correct, just a little bit of color on why that is. Is it industry normalization? Is it residual weather? What is that?

Got it. Thanks.

Thank you. And ladies and gentlemen, that is all the time we have for questions today. At this time, I'd like to turn things back to you, Miss Lynch, for any closing comments.

Thank you, Miss Lynch. Again, this does conclude Vail Resorts fiscal 2024 year-end earnings conference call and webcast. You may disconnect at this time. Thanks again, everyone.